Aveng Limited (UG8.F) Earnings Call Transcript & Summary

Good morning, and welcome to the Aveng's 2025 Interim Results Presentation. I am Scott Cummins, Aveng's CEO; and with me today is Adrian Macartney, Aveng CFO and Financial Director. For the agenda today, I will take you through the salient features. Adrian will talk to the financial results. I will then return for the market outlook, the strategy update and the key messages. Finally, Adrian and I will answer your submitted questions. Before we begin, the picture on the right is from one of our teams in New Zealand. The Shotover Wastewater Treatment Plant Upgrade project in Queenstown. It is representative of one of our core competencies in water and wastewater across the Group. Another example of our core competencies at work, the Queen Salote International Wharf Upgrade, in Nuku'alofa, Tonga, representative of our strong marine presence in the Pacific. Now to our results. It has been a disappointing period. Significant losses on 2 projects awarded prior to COVID has impacted good performance in the remainder of the portfolio. Our revenue of AUD 1.4 billion is slightly below the comparable period of last year. We recorded a headline loss of $34.4 million, but with a strong level of cash on hand. At $256.1 million, it is up from the end June position of $227.7 million. We incurred an operating loss before capital items of $31 million, which included the losses from the 2 projects, J108, and Kidston of $76.7 million. Obviously, the performance of the remainder of the portfolio was good, delivering a profit of $45.7 million, showing the margin improvement we anticipated. Work in hand was $2.6 billion, down from $3.1 billion as of 30th of June. In the infrastructure portfolio, we have over 60 active projects. 2 of those projects, J108 and Kidston, have suffered a significant combined loss of $76.7 million in the period. The balance of the projects delivered an improved profitability and operating earnings of $50.2 million. In the Buildings segment, operating earnings improved through continued solid project execution, and significant new work was won on the back of our focused and deliberate pursuit of opportunities within the health care, recreation and education sectors. The Mining segment continued to focus on achieving steadily improving production performance, better commercial outcomes and the pursuit of new work. We concluded a new 60-month contract at Gamsberg, which will deliver greater volumes, increased revenue and improved profitability. We also completed the disposal of Dimopoint, which further positively addresses legacy matters remaining in Aveng. And finally, our separation strategy to create 2 separate and independent entities has made steady progress and remains the key focus for this calendar year. Now to the 2 projects that have jointly contributed to the loss for the period. Firstly, I advise that both of these projects were tendered in 2019 and awarded in 2020. I would also add that under the improved risk management processes introduced in 2023, we would no longer allow projects with this risk profile to be undertaken, to be tendered in the lump sum contract form. Now to the Kidston Pumped Hydro Storage project in Queensland, Australia. Previously assumed productivities for the works in the underground powerhouse -- underground powerhouse cabin did not achieve previously assumed productivities. We are monitoring the work month-on-month, trying to understand why those productivities weren't being achieved, but primarily due to technical complexity, a constrained worksite and the very bespoke nature of the work, we have incurred additional time-related costs. That has extended the schedule due to lower productivities. Our plan to completion. The forecast schedule and cost to complete is now based on actual productivities being achieved. We've engaged international experts to support the project team to ensure that we have the best knowledge and the most contemporary experience associated with this type of work available to support the project team in execution. Project completion is expected in Q4 of FY '26, and the cash flow impact of this loss will be realized over this period. We continue to engage with our client to address various claims arising on the project. The Jurong Regional Line, J108, in Singapore, is an above-ground rail viaduct with 3 elevated stations. It was originally tendered pre-COVID as a greenfield project, but has ended up being executed under very different and materially different conditions. Unfortunately, we have been unable to mitigate cost increases and schedule delay primarily due to the disruption arising from government prioritized HDB or housing developments in the area. Hyper escalation and a strained subcontracted market has also significantly impacted the project. The picture on the left very succinctly depicts building the elevated viaduct within a live and operating community within Singapore, which has caused much of the disruption experienced. Despite our significant pain, the project progress, safety and quality has been positively acknowledged by the client. Our plan to completion, we now understand the current physical environment and the constraints that we're dealing with. The project has been augmented with additional corporate leadership. All the major works will reach basic structural completion by Q2 of FY '26, and the majority of the cash flow impact associated with the loss will be realized over this period. Discussions with the client are ongoing to ensure the successful completion and the resolution of claims arising from the various matters, including the disruption we have experienced. If I now go to each of the segments in turn. Firstly, infrastructure, which comprises 70% of the group revenue. An operating loss of $26.5 million has been incurred that includes the total loss of $76.7 million on J108 and Kidston. The portfolio, excluding J108 and Kidston, operate at an improved margin in excess of 4%. In Australia, the extraordinary cost escalations that we have talked about over the last 3 years have largely stabilized. The non-margin contributing projects awarded pre-COVID are progressively being worked out of our portfolio. The portfolio of projects awarded post-December '22, inclusive of the escalation mitigations we put in place in those contracts are performing well and at higher average operating margins. As was anticipated and talked about in our previous presentations, the order book has declined as a consequence of a reduction in transport capital investment and a slower than expected shift towards other sectors, namely New Energy. In Southeast Asia, the newly awarded marine projects are profitable. We continue to focus on self-perform projects in the specialized sectors, most specifically in Indonesia and Singapore, and the opportunity pipeline is showing signs of improvement. In New Zealand and the Pacific Islands, we continue to have consistent operational excellence, which is exceeding performance targets. The order book is down on the back of slower economic conditions and increased infrastructure market pressures, but we're expecting improvement to emerge in the coming period. The pie graphs on the right depict by region and contract type at the percentage of the work spread of work in hand. To the Building segment, which is performing extremely well. It comprises 14% of group revenue, and I'm pleased to report that 100% of the projects are profitable with over 90% of the projects above tendered margin. Operating earnings at $9.2 million and a percentage return of 4.5%. The revenue was comparable to the prior period, and we also won significant work in H1 2025. The operating earnings and margin are higher than in the comparable period and above plan due to good project execution. As you can see in the pie graphs, the work in hand is evenly distributed across the 3 regional markets in which Built Environs operates. South Australia continues to hold market leadership in healthcare sector. And in Victoria, we've seen a steady growth in work in hand and the award of key projects in the education and recreation sectors, which is very much aligned with government spending priorities on the back of a growing population. New Zealand, good performance has been seen as a consequence of the successful transfer of the healthcare sector expertise to the Auckland market, coupled with partnership with the Infrastructure segment. We are expecting a slowdown because of reduced government funding and a stagnant population growth, which exists in Auckland. And to the third segment, Mining, which contributes 9% of group revenue. Our consolidation and reset operational strategy is well progressed. Positive operating earnings for the period, returning a margin of 1.1%. The Gamsberg project is performing exceptionally well. Production volumes are ahead of plan, and the project team has steadily increased volumes over the last quarter in support of client needs. The Tshipi contract is achieving planned volumes, but not yet delivering expected profitability. We need to resolve outstanding commercial claims, which is work in progress. Decrease in revenue as compared to the comparable period is down as a consequence of scaling down of 2 contracts in 2024. To long-term contracts, we concluded a 60-month contract at Gamsberg, that's going to deliver greater volumes, increased revenue and improved profitability. Existing equipment has been redeployed to Gamsberg in support of this new contract. And new lease equipment, which is already on site and ready to go and the phased equipment upgrade is all fully supported by project cash flows. The continued ramp-up, which has already begun and will continue through to the peak volume expectation around April of the coming period, we'll see the benefit of this contract in H2 of '25. And on Tshipi, we're reviewing the potential of a new contract under improved commercial terms. Our fleet rationalization program has continued and any additional capital expenditure for new equipment or for upgrades or for renewal of various items will all be funded through project cash flows. I'll now hand over to Adrian for a review of the financial results.

Thank you, Scott, and good morning. This slide depicts a project for the Western Program Alliance in Melbourne, in Victoria. The Western Program Alliance has been a successful project for us over a number of years, delivering several grade separations around Melbourne. Although as we know and as we've spoken about is that the transport infrastructure market in Victoria has reduced significantly, and we do expect that, that work will slow down going forward. And in the current period, there were 2 awards of new contracts to us. As Scott has mentioned, the revenues were lower in the period, and this is in line with expectations and with our previous guidance and talks to the slowing across all of our segments. The operating earnings were completely overshadowed by the 2 project losses of some $76.7 million. We do retain a strong cash balance that supports our working capital position. We'll talk about that a little bit later. Earnings per share, of course, was a loss of some $0.254 and headline loss of $0.267. Our operating free cash flow of $16.1 million. Moving across to a little bit more detail. Again, the revenue decreased, as I've mentioned, across all segments, around about $1.4 billion. And the underperforming projects that we've previously talked about or 0 margin making projects continue to reduce and have a reducing proportion of revenue as these projects move towards completion. This has allowed our gross earnings to increase. And so when we look at our gross earnings prior to the project losses, we have to look at the remaining projects to understand how we're performing there, and those margins are slowly but surely improving as we work the older projects out of the book. In terms of net finance expenses, we've held that pretty flat, and those largely relate to asset-backed finance. The capital earnings includes the net impact on the gain on the derecognition of IFRS 16 assets and liabilities associated with the Dimopoint infrastructure sale. It was an important sale to complete in December, firstly, in that it released us from various lease obligations associated with leased properties in South Africa, mainly around businesses that we no longer own. And we effectively removed that liability from our balance sheet together with a smaller lease asset that was associated with some subleases that we had, realizing the value of the investment and adding cash to our balance sheet. But more importantly, freeing up our balance sheet from those lease liabilities and of course, from the administrative burden of managing a series of leases on properties that we are no longer associated with. During the period, we also raised some additional asset-backed finance in Australia. So we raised a $15.5 million facility, and that has added to our debt balance there. If we move over on the segments. The Infrastructure segment, as I've said, distorted significantly with an operating loss of $26.5 million, including the $76.7 million on those 2 projects. Clearly, the rest of the portfolio delivering a profit of some $50.2 million for the period. That profit was higher than we had anticipated, largely on the back of some outperformance on particular projects. And unfortunately, these have all been masked by those 2 significant losses. The Building business, as Scott has said, was an excellent performance in the period. We did previously indicate that we thought that their revenues would be slightly lower for the year, but they've managed to -- I think we're going to get revenues pretty flat or slightly up on the prior year for the full year. Great margins out of that business. And importantly, that they continue to work to win work, notably in Victoria, where our work in hand in total now is $515 million. Mining business is pleasingly turning, and we're seeing consistency of operational performance, certainly in terms of volumes on the Tshipi mine and increasing volumes, as Scott has said, as we ramp up production at Gamsberg. CapEx incurred, both at -- in the mining business. As you know, we continue to support our yellow metal and that requires component replacement and new equipment from time to time. And the CapEx in the infrastructure space, largely around our marine barges, where we invested some additional funds there, these marine barges have proved to be differentiators over the course of the last 6 months, which have allowed us to win particular work such as Groote Eylandt for the South32 mine there as we assist them in repairing their facilities. Turning to the Aveng legacy matters, just to point out there. The capital earnings of some $7.6 million we have deducted other expenses associated with implementing our strategy. And then finally, in our Other & Eliminations, you can see more clearly there are operating expenses and overheads, $12.7 million and -- sorry, apologies, the $3.7 million there being associated with the implementation of our strategy, so incurring costs for external advisers and investment bankers. Overall for the business, net finance expenses have remained pretty flat. We do expect that to continue going forward. Asset-backed finance really being amortized in line with a payment profile. What we will see though is the investment starting to come through in the last quarter of this year for the Moolmans business. We will be incurring some $1.35 billion of CapEx over the life of the program, but it is spread out over the life of the program and involves both new CapEx and the refurbishment and rebuild of existing assets. If we turn over the page, our financial position. Notably, current assets, current liabilities, we keep that fairly tight in the infrastructure business, notably, we do run that business at a negative working capital. And hence, our cash balances that are retained in support of that negative working capital. And we do see from time to time, half to half that the movement in working capital can be material upwards or downwards. In this particular period, it was positive to work for us, but important that we retain that cash buffer to support that. In terms of the cash, perhaps just pause and talk about that. The cash of some $256 million, we do have some surplus cash in that, that will assist us with dealing with this $76.7 million worth of loss. And we expect that cash outflow to be similar to the loss and to flow out over the next 18 months. And we will see some cash outflow between now and June with the bulk of it flowing out in the F '26 year. In terms of our PPE and right-of-use assets, we had some additions there, some $18.9 million depreciation, a little bit of disposal, a little bit of FX gains and losses. So slightly down on our PPE for the period. And we have been disposing of some noncritical redundant assets in mining, and we expect to see some future investment in mining, as I've said, going forward. In terms of our borrowings, the principal difference there, we did raise some new ABF in Australia. We also used some short-term funding around debt, which we used to smooth certain large expenses such as insurance premiums and the like, and that is typically incurred and dealt with during the course of the year. Some ABF in mining to point out there, some IFRS leases that was associated with some equipment and some offices, amortizing IFRS 16 repayments. The derecognition there, $36.9 million, largely associated with leases on the Dimopoint investment that I've spoken about. Our movements in working capital, as I've said, significant movements. The 2 big issues there, trade and other payables and contract assets and in line with lower levels of activity, we have paid down our trade and other payables, reduced our creditors, although our contract assets have also reduced in the period. Looking at liquidity, a strong cash balance that we have managed to retain. I think it's important to understand that in a construction business such as this, it is important to retain a strong pool of cash as we go through. Started the year with some $227 million. Of course, that working capital change, a large increase there. We did have some repayment of borrowings and the like. Those were notable, some capital expenditure and then some lease payments go down. We had some new external borrowings that I've mentioned. And so we have been borrowing and we have been cycling against that borrowing and repaying, notably in the Moolmans business where we're getting through quite a bit of asset-backed finance, because you would recall probably 2 and a bit years ago, we started investing in that -- those assets for the Tshipi mine. So cash details set out there quite nicely at the bottom of the page. Our cash balances, our South African liquidity pool is slightly stronger there as well. Australian liquidity pool is slightly stronger there in terms of cash and the increase in our ABF. Overall, still a net cash improvement as well. And Scott, that's all the finance, if you'd like to take over.

Thank you, Adrian. Again, another picture of one of our projects in progress there, the Mardie Salt & Potash Project in Western Australia, Australia, an example of our marine specialist work in progress. Now to the market. A different situation across our 3 sectors. Firstly, to infrastructure. We are expecting an increased amount of market activity in the specialist areas in line with our focus on water and wastewater, defense, marine and alternative energy. However, we are seeing a period at the current moment where there's a degree of uncertainty, particularly associated with various state elections that are going on in Australia and the upcoming federal election also in Australia as various governments review priorities, review where they want to allocate spend. So whilst we've got these government changes and elections, we are seeing somewhat of a little uncertainty and a slowdown. We are seeing the same situation in New Zealand. But as I said earlier, we are expecting a more positive situation to emerge in that market. An increasing number of projects in Southeast Asia are emerging in the areas where we want to focus our attention, namely that marine work and outfalls and water inlets to mines and so forth. And as we sit today, we've got $1.9 billion worth of work in the preferred category and $3.3 billion of tenders submitted or in progress. The building market is slightly different. The markets in Australia are very strong. And as I've said, our focus area on healthcare, education and recreation is in direct response to the growing population and the demand on governments to actually spend in those areas to service the communities where those population -- where that population growth is being seen. In New Zealand, however, we are seeing a slowdown in those areas. Again, driven by the stagnant population growth. But what is evident to us is that the aging infrastructure in the healthcare sector means that there is going to be long-term demand that we will focus on in the medium to longer term. The building has $540 million in preferred contracts and 786 tenders submitted or in progress. With mining, we're very pleased to have landed the contract we did up at Gamsberg, but there does continue to be some fragmentation and issues associated with the mining infrastructure market, which continues to cause some concern with regards to opportunities there. But in the longer term, we think there will be emerging opportunities in the SADC region, as I said, in the longer term. Now if we go over to our strategic review that we talked about last time we spoke as at our end of year presentation. As has been previously expressed, we remain committed to the strategy of enhancing stakeholder value and maximizing value to shareholders through improved operational performance and the creation of 2 independent and separate entities. Our intent is to support and enhance the prospects of both entities for all stakeholders by enabling them the means to be able to access the most attractive capital markets so as they can pursue their separate strategies. If we talk to Moolmans first, the focus remains on improving operational performance and commercial management and securing new contracts that add value to Moolmans. And we have seen some real success in that area over the last 6 months. Moolmans has entered into that 60-month contract at Gamsberg, which we see as being transformational for the Moolmans business and attractive to potential purchases. We've made steady progress with the overall process to introduce Moolmans to potential purchases, including the potential of access to BBEEE (sic) [ BBBEE ] capital. Negotiations in that space continue with all interested parties. Now if we turn to McConnell Dowell, which includes Built Environs, the focus in that part of the business remains on improving the consistency of project performance. And we clearly have a need to win new work in the Infrastructure segment. The proprietary work, which covers legal, tax, statutory and financial due diligence for the separation of McConnell Dowell has all proceeded in accordance with plan. A range of implementation options for that separation are now being assessed to deliver the shareholder value, and they will be pursued in earnest over the next 12-month period. Now if I may summarize the key messages for our half year interim results. Clearly, the focus is to complete J108 and Kidston projects in accordance with the current plan. For the Infrastructure segment, we want to continue the good performance we've seen in the rest of the portfolio and then secure new work and strengthen the order book as more favorable market conditions improve. In Building, maintain the positive trajectory of growth and profitability that is being delivered by that segment. Mining, steadily increase the volumes and profitability at Gamsberg as the team are currently doing to meet the requirements of the new contract and improve the financial performance at Tshipi. We will maintain a disciplined approach to the pursuit of new opportunities and delivering work in hand. We are committed to our stakeholders and the long-term sustainability of both businesses. And our overall strategic direction of the group to pursue 2 separate and independent entities remains unchanged. I would now like to open it up for any questions.

Scott, so we've got a few questions on the line. And I'll give you a heads up on some of them. You can think about them, and I'll do a couple of easy ones first. So Rob Nagel from Ashburton. Just made a comment that going forward you think investors would prefer to know about these kinds of negative events way before the reporting date. And secondly, how can investors be comfortable that new risk assessment strategies will not result in a similar experience going forward? Also, and related to that, I think John Aaron from SBG Securities has asked, discussions with clients to ensure the resolution of claims are ongoing. Is it, therefore, likely that the costs recognized to date, $77 million on both Kidston and J108 could be higher. So perhaps if you could have a think of those, and I'll deal with a couple of easier ones. The question is from Yipeng Liu from Allan Gray in Australia. What is the additional future cash outflow needed for the 2 loss-making projects to be realized over the next 18 months? Yipeng, I think I've made mention of it. The cash outflow will largely be similar to the loss. A portion of it will flow out between now and June '25, with the bulk of it actually in the F '26 year. In terms of -- another quick one, Zakhele Zondi from Bateleur Capital. Adrian, apologies for making you repeat yourself here. But can you touch on the CapEx outlook you gave for Moolmans? Is it $1.35 billion for 2H? Absolutely, no. It's ZAR 1.35 billion, first of all. And second of all, it's going to be across 60 months. So we have acquired some assets already. As Scott has mentioned, they're on site already. We worked with our OEMs to get those delivered well ahead of plan. Those are 2 large excavators that are on site at the moment. And they will be signed under lease from our financiers now. We have some capital that will arrive between now and April and some more capital will arrive between now and June. And then we're going through a rebuild program. So what we've done is we've redeployed assets from contracts that have ended in the prior period. We will deploy those onto the site. We will use them for a period, and we will have a rolling -- effectively a 0-hour rebuild program on some very heavy trucks, and that will continue through the course of the first 4 years of the program where we continuously rotate and recycle trucks. We're quite excited about this program. It allows us to better sweat the assets and utilize the assets over a longer period of time and effectively at a lower unit cost ultimately to our mining client. In terms of another quick one, John Aaron, SBG. Moolmans has been for sale for some time. How close are you to selling the business? I don't necessarily agree with the statement. We announced our strategy in August of last year, so it hasn't been for some time. But over the course of the last 6 months, we have, with our bankers, identified potential buyers. We've worked through a data room. We've dealt with various buyers. Some have moved into the process, some have moved out of the process, some have been added to the process. And we continue to negotiate and discuss with a range of buyers. At this point, we don't have something sufficiently concrete to take to our Board or announce to the market. But I would certainly hope that we would move towards something more concrete in the coming months. So Scott, perhaps you had a few moments to think about those questions.

Yes. Thanks, Adrian. So maybe if I go to Rob's question first about the emergence of those cost increases. Maybe if I refer to an example would be a good one. Kidston is a good one to look at. We felt that we had a very solid cost to complete estimate associated with that job based upon the best of the knowledge that existed in our organization and our partners' organization. And also our OEM team that was part of the project, taking into account everything that was necessary. As we got into some work phases that we hadn't yet experienced on the project, it was clear to see that we were struggling with the productivity. Now of course, you don't immediately take on board the increased cost and schedule impacts associated with that because the first course of action is to mitigate it and to try a number of measures to see if we can completely mitigate the situation. So over a course of a couple of months as we're monitoring that, it became evident that our mitigating measures were not going to deliver the assumed productivities we had in the first place. So therefore, you do have to come to the realization that those additional costs are going to be incurred and take on board the schedule delay that arises as a consequence of those productivities. So it emerges over a period of time. And then when you take stock and look at it through a position of that, well, this is what we're now achieving, it's time that we assess the cost that's associated with that. And if we can put some mitigations in place and we can get these external consultants that come in that have got contemporary knowledge and experience in building these plants from around the world, then hopefully, that will bring some improvements to us to help improve the level of performance on that job. As far as how do we ensure that we don't have that type of situation going forward. Like I said in the presentation, those jobs were tendered a long time ago, 2019 and awarded in 2020. We put some very significant risk management measures in place in 2023 that under our current risk regime and risk management processes, we would not take on projects with that level of risk in a lump sum contract form. So I believe the risk management processes we have in place now would prevent this situation from arising again. These complex projects that are very bespoke that aren't typically done in Australia should not be done in a lump sum environment. We might continue to participate in those markets and those opportunities, but it would be on a different contract form. We want to take our expertise and knowledge that we have, but in a contract form that's more suitable. That might be cost plus, that might be an incentivized target cost model where it is more appropriate for those types of projects. If I go to John, you raised the question about claims. When we had some circumstances that arise, for example, J108, a lot of disruption that wasn't anticipated when that project was tendered. We obviously take a good look at the contract. We take a good look at as what avenues are there for claims, what is customer cause disruption or delay, and then we put our claims together accordingly, and we present those to the customer. Any revenue that we might consider that we should be able to get from those claims is only on the basis that is a highly likely outcome. I certainly hope to do better than what I would consider a highly likely outcome, and we'll pursue that. And I certainly don't want to disclose what we've done on each of those projects as we work those issues with the customers. But where we believe we have basically a real solid basis of certain claims, then we will recognize the cost, but we will be counting on achieving something from those claims where we believe we have a solid case to do so.

Scott, following on in similar veins, from Marc Ter Mors at SBG Securities. 2 loss-making projects still have some time to go to completion in '26. How confident is the business that cost to complete and a risk provision have been recognized. I suppose it's a question about the adequacy and certainty of that.

Yes. I think we have to look at the 2 projects independently. On J108, I use the term basic structural completion, and most of that will be complete in the -- I said the second quarter of next financial year. And all of the work that's being currently done on that project is in progress as we speak. So we have a good handle of what it takes to build that viaduct in amongst that HDB environment and build the stations where we're building them now with the subcontractors that we're using. So I think the degree of reliance on our cost complete there is in good shape. And I think we feel confident that we've got that covered at this particular point in time with appropriate contingency allowances to address any risk that might arise. On the Kidston project, I believe that with the advent of those international experts that I've talked about to come and review the project, that's certainly going to help us and to ensure that we're using the best possible practices available in the world for building that type of project. Unfortunately, the bespoke nature of that job doesn't allow us to take advantage of the learning curve that everybody goes through when they're building 2 turbines, a couple of hundred meters underground. We build the first one, then we go into the second one. We see real improvement in our productivity. But unfortunately, we don't have a third or fourth or fifth or a sixth to really ramp up and take advantage of that learning curve. Look, there is a ways to go on Kidston. That will continue to be monitored very closely on a monthly basis because there is some elements of work on that job that we haven't yet undertaken. So therefore, I'll be looking to get validation of the estimates that we've got in place, which have been informed by the best knowledge available on a global basis at this point in time.

Scott, Andrew Vincent from ClucasGray. I think some of it you've addressed and there's a few points we should -- we do need to still address. But Andrew is saying good morning and thank you for the presentation. What transpired between your August results presentation in December that led to a $77 million hit to earnings of these 2 projects? I think you've addressed part of that. How could such a material loss suddenly develop on long-term projects? And what percentage of ongoing work relates to projects awarded pre-COVID and by implication, are at low margins and at a risk of further losses. Now I think we need to address there the distinction between, for instance, work that is in an alliance versus work that's on a fixed lump sum.

Yes. Thank you, Andrew. So maybe if I address that first. I mean we do have a number of projects that were awarded pre-COVID that -- but they're diminishing in terms of volume in the order book as we sit here today. A great majority of those were alliance projects where we had full cost protection. That, of course, had a negative impact on our overall margin profit divided by revenue because we had revenue going through, but that wasn't bringing any profit associated with it. But we're seeing those very steadily come out of the order book. The 2 projects, J108 and Kidston, however, weren't alliances, weren't cost reimbursable projects. So we've had -- we suffered the impact of those during this period. So what was the other part of that question there, Adrian? I missed that.

It was really about how did we really -- how did the projects incur losses between August and December? I think you've addressed some of that already, Scott. And material losses on a long-term project, I think it's really important to understand that it's -- these projects are not linear. They're not -- we're not repeating various actions. We move from different phases.

I think that's exactly the point, Adrian, is a project of Kidston has many phases and many elements. You're obviously working on the dam associated with the upper dam and the lower dam. You're working on the tunneling to getting down to the cabin where the powerhouse is. You're then working on the powerhouse and excavating the powerhouse. And so as you're going through each different phase, you're assessing your cost and your schedule to do that work. It wasn't until we started the complex structural components within the confines of the powerhouse that we recognize that our assumed productivities, which were well considered at the time were found to be lacking. And so in these long-duration projects where you come across a new front of work that, that project has an experience for, that's when you're validating your tender assumptions at that point in time.

Scott, if we can move on to another question from Marc Ter Mors, more about markets. The combined tenders and preferred bidder possible projects combined make up about 200% of the historic order book. On this basis, do you expect the order book to grow in the next period?

No, I'm not expecting the order book to grow in the next period, Marc. I mean being in a preferred position is a wonderful place to be, but there are a number of factors in the market that are having a real impact on the time line associated with converting those preferred projects into an actually awarded contract. The escalation that I've talked about constantly, it also affects future work. And a lot of our clients haven't had the budget to accommodate the escalation that we've seen over the last couple of years. So then as we go through discussions with our client putting costs together and schedules together and when you come up with what it's going to build the job, they realize that they don't have the budget. So that puts in question the financial viability. And we're particularly seeing that in some of these new energy projects where the cost increases that have occurred as a consequence of the hyper escalation post-COVID have put the viability of some of those projects in question. So I think what we're seeing is a general slippage and movement to the right of those projects where the customers need to go back, revalidate their financial investment decisions and revalidate their funding or obtain additional funding to be able to support the project. So although we're in those preferred positions, and we're paid as we work through those early contract engagement dealings with our customers, the reliability associated with the timing award is a little uncertain.

And that's all the questions we have at this point in time.

All right. Well, I'd like to thank everyone for attending, and I look forward to getting around our investors in person over the next few days. On behalf of Adrian and I, thank you very much.

Thank you.